This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Financial Advisor Background Checks Omit Crucial Information Under "Veil of Secrecy"

By Hal M. Bundrick for MainStreet

NEW YORK (MainStreet) Investors are always urged to perform due diligence when hiring a financial advisor, and one platform often recommended is the Financial Industry Regulatory Authority (FINRA) BrokerCheck tool. But the Public Investors Arbitration Bar Association (PIABA) says due to a "veil of secrecy," consumers are being misled with "crucial" information being excluded from the database.

The PIABA says that the extent of omitted "red flag" background information is so serious that unwitting investors could hire a financial advisor that they would not even consider if they had access to the more complete information now being hidden.

"The veil of secrecy that exists in the current BrokerCheck system should be lifted to allow consumers access to a comprehensive, reliable source so that they can make informed decisions about a profession that has extraordinary influence over their life savings," said Christine Hines, consumer and civil justice counsel with Public Citizen, a non-profit consumer rights advocacy group.

"It is indefensible for FINRA to withhold critical information, already under its control, from the public."

Many state securities agencies offer more complete financial advisor background information than that offered by FINRA, according to the PIABA. The organization believes this data should be incorporated into the BrokerCheck system so that investors can tap comprehensive advisor data from a single source.

"All investors should be able to obtain complete and consistent information about brokers. Period. The quality of the disclosure you get about brokers should not depend on which state you live in," says attorney Jason R. Doss, president of the PIABA. "There is no rational basis for FINRA to hide key 'red flag' information that investors in some states can get from state-level agencies. Given that FINRA has failed repeatedly to take action to increase the disclosures in BrokerCheck, Congress and the SEC need to compel them to do so if necessary."

PIABA compared FINRA BrokerCheck and state-level disclosures for a number of brokers and found the following discrepancies:

  • When a broker-dealer fired a registered broker, the FINRA BrokerCheck system excluded the reason for the termination, as well as other information regarding the matter.
  • Information about whether a broker was ever under internal review "for fraud or wrongful taking of property, or violating investment-related statutes, regulations, rules or industry standards of conduct" is not reported by BrokerCheck.
  • A personal bankruptcy filed by a broker is also not reported by FINRA.
  • A federal tax lien filed against a broker in excess of $100,000 is not disclosed by BrokerCheck, but is disclosed in state reports.
  • Information about failed tests for industry qualification examinations is not disclosed through BrokerCheck, which does not reveal the scores achieved and the number of times a broker failed such tests. It only shows which exams were passed but not the score or how many times a broker may have failed before finally passing.

FINRA maintains the Central Registration Depository (CRD) database and BrokerCheck tool, drawing from the same pool of information as state securities agencies.

--Written by Hal M. Bundrick for MainStreet

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,356.87 +288.00 1.69%
S&P 500 2,012.89 +40.15 2.04%
NASDAQ 4,644.3120 +96.4780 2.12%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs